Low tax revenue limits room for fiscal stimulus; dismal GST, direct tax growth adds to pressure

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Updated: September 19, 2019 5:15:07 PM

The ongoing slowdown has cast its shadow on the direct tax collections, which grew only 5 per cent between April 1 and September 15, compared to 17.3 per cent during the same time last year.

direct tax collection, CBDT, income tax, GST, gst, fiscal stimulus, revenue, fiscal deficitLow direct tax collections, coupled with low GST collections, are expected to hit the overall revenue, making it tougher for the government to stick to the annual fiscal deficit target.

The dismal growth in net direct tax collections so far this financial year 2019-20 may restrict the government’s ability to provide a fiscal stimulus to the ailing economy. The ongoing slowdown has cast its shadow on the direct tax collections, which grew only 5 per cent between April 1 and September 15, compared to 17.3 per cent during the same time last year, PTI reported citing unidentified sources. Low direct tax collections, coupled with low GST collections, are expected to hit the overall revenue, making it tougher for the government to stick to the annual fiscal deficit target.

The fiscal deficit in the first four months has already touched 77 per cent of the annual target, while net direct tax collection, as reported by PTI, remained Rs 5.5 lakh crore till September 15. This also suggests that the tax authorities now have to collect Rs 7.85 lakh crore in the next six-and-a-half months to touch the annual target. 

“Net tax revenue growth in April-July 2019 trailed the budgeted target of 25.3% relative to the Provisional Actuals for FY2019. We estimate that the net tax revenues of the GoI would need to expand by a sharp 28.0% in the last eight months of the fiscal year, to meet the July 2019 Budget Estimate for FY20, which appears to be a steep target given the subdued economic outlook,” Aditi Nayar, Principal Economist, ICRA, told Financial Express Online

Also Read: Tax collection misses target by a wide margin; inches up 4.7%

The government is continuously trying to pump liquidity in different sectors of the economy to steer it out of the slowdown, but increased pressure to keep the overall revenue deficit limited may make it tough for the government to allow any more fiscal slippages. The government has extended fiscal and liquidity support to various economic sectors, such as recapitalisation of banks with Rs 70,000 crore and providing additional liquidity support of Rs 30,000 crore to housing finance companies.

Also Read: Former RBI Governors take opposite stands on ways to revive economy; spend or not to spend?

However, providing further such fiscal stimuli can damage the fiscal health far more than the current scenario. Addressing Finance Minister Nirmala Sitharaman in an open letter published in The Indian Express, Former RBI Governor Duvvuri Subbarao said that everyone, including the FM, knows that the actual fiscal deficit is higher than what is shown in the budget and it is completely irrational to not admit the true fiscal deficit. He suggested the government to restrict itself from providing any further fiscal stimulus as borrowing to meet current expenditure will be unsustainable.

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